US shares close lower on threat of a shutdown

Capitol Hill The US federal government could start to shut down on Tuesday

Related Stories

Shares in New York closed lower as the prospect of a shutdown of some US government activities looks increasingly likely.

The Dow Jones closed down 128 points, or 0.84%, while the S&P 500 and Nasdaq fell by 0.60% and 0.27% respectively.

However, all three indexes were up for the month, buoyed by a strengthening US economic recovery.

The US needs to agree a new spending bill before the financial year ends at midnight on Tuesday.

But political divisions have resulted in a stalemate and there are worries over the economic impact of a shutdown of the US government.

"The shutdown will have a very real economic impact on very real people right away," said US president Barack Obama late on Monday, after it seemed as if negotiations had all but broken down.

Start Quote

For all the absence of any big economic or financial shocks for the best part of two years, substantial accidents can still happen, in a global economy that remains structurally flawed in a serious and substantive way”

End Quote

If the government does shut down on 1 October, as many as a third of its 2.1 million employees are expected to stop work - with no guarantee of back pay once the deadlock is resolved.

National parks and Washington's Smithsonian museums would close, pension and veterans' benefit cheques would be delayed, and visa and passport applications would be stymied.

Programmes deemed essential, such as air traffic control and food inspections, would continue.

Unemployment report

Investors will be keen to know if Friday's job report will be released.

The monthly non-farm payrolls report is one of the most closely watched pieces of US economic data.

Employees at the Labor Department's Bureau of Labor Statistics (BLS), who prepare the report, would be among those who would stood down in the event of a shutdown.

Shutdown graphic Significant US government activities could be hit by a shutdown

"All survey and other programme operations will cease and the public website will not be updated," said Erica Groshen, commissioner of the BLS, said in a memo published on the department's website.

Deadlock

Republicans are targeting President Barack Obama's healthcare law, popularly known as Obamacare.

Early on Sunday, the Republican-run House of Representatives passed an amended version of the Senate spending bill that removed funding for the healthcare law.

That bill was roundly rejected by the US Senate as soon as members returned on Monday.

The Democratic-led Senate voted 54-46 against the bill.

"It will be a Republican government shutdown, pure and simple," said Senate Majority Leader Harry Reid, Democrat of Nevada, referring to the Republicans as "bullies".

"We are not going to negotiate on this. We have done everything we can to be fair and reasonable."

After the vote, Republican House Speaker John Boehner told reporters his chamber would re-evaluate the proposal, but it remained unclear if Mr Boehner could convince members of his party to change their position in any meaningful way.

Mr Obama echoed Mr Reid's concerns, saying that "one faction of one party in one house of Congress in one branch of government doesn't get to shut down the government".

Market Data

Last Updated at 03:35 ET

Market index Current value Trend Variation % variation
Dow Jones 16943.81 Up 28.74 0.17%
Nasdaq 4415.49 Down -3.54 -0.08%
S&P 500 1967.57 Up 2.89 0.15%
FTSE 100 6715.85 Up 25.68 0.38%
Dax 9711.42 Up 45.08 0.47%
BBC Global 30 7108.77 Up 11.76 0.17%
Uncertain Italy

Meanwhile European financial markets have been upset by a deepening political crisis in Italy.

Italian shares closed down 1.2% and the euro fell to the lowest level since June against the Swiss Franc.

Italy's 10-year bond yield - an indication of how much the government has to pay to borrow money - rose as high as 4.66%, the highest level in more than three months.

Start Quote

There would be a fairly big impact on the economy. Economists estimate that a two-week shutdown could cut GDP growth by 0.3 percentage points.”

End Quote

Prime Minister Enrico Letta plans to hold a confidence vote on Wednesday, to seek the backing of Italy's parliament.

He was forced to make that move after five ministers from Silvio Berlusconi's party stepped down at the weekend.

But those ministers have now given mixed signals as to whether they are actually leaving the government.

The crisis follows weeks of worsening ties between Mr Berlusconi's party and Mr Letta's grouping.

Mr Berlusconi's People of Freedom (PDL) objects to a planned increase in sales tax, which is part of a wider government policy to reduce big public debts.

'Fear of the unknown'

Earlier on Monday, Worries over the US shutdown had hit Asian shares.

Japan's Nikkei 225 index closed 2% lower, Hong Kong's Hang Seng was down 1.5%, Australia's ASX fell 1.7%, while South Korea's Kospi shed 0.7%

"It is the fear of the unknown," said David Kuo of financial website the Motley Fool. "No one knows what is really going to happen and markets don't like uncertainty."

"There is likely to be some reduction in US government spending, but we don't know what areas are going to be affected.

"Until that is resolved, we are likely to see volatility in the markets," he added.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    FORD SOUTH AFRICA 08:35:
    Metal Workers protest, Durban

    Ford says production at its plant in Pretoria, South Africa has been suspended due to a strike by metalworkers. General Motors' plant in Port Elizabeth has also been closed. Labour relations in South African have been deteriorating - the platinum industry was shutdown for months due to a strike by miners.

     
  2.  
    BROADBAND 08:27: BBC Breakfast
    Dominic Laurie and a horse

    BBC Breakfast's Dominic Laurie (on the right) is at a stable in Milton Keynes to talk about today's broadband report. RB Equestrian has had problems with its broadband speed, with employees finding it quicker to go home to upload pictures. A telecoms expert from Ovum says businesses should consider using 4G (hi-speed mobile network) because it sometimes works faster than broadband.

     
  3.  
    SHIRE TAKEOVER BID 08:19: BBC Radio 4

    Panmure Gordon's pharmaceutical analyst, Savvas Neophytou tells the Today programme he thinks the Shire deal will now go through. His research estimates that the benefit to AbbVie in moving its tax base to the UK (one of the reasons for the deal) is around $350mn and it could be as much as $600m. For the UK it means more jobs, he says.

     
  4.  
    SHIRE TAKEOVER BID 08:06:

    Quick check on Shire's shares...they're up 3% this morning after the news that it will recommend the latest takeover offer from US rival AbbVie.

     
  5.  
    AIRBUS A330 07:59:
    Rolls-Royce engine

    Airbus has launched the much anticipated A330neo aircraft at the Farnborough Airshow. It's a more fuel efficient version of the plane and will be powered by Rolls-Royce engines. You can keep up with our Farnborough coverage here.

     
  6.  
    CHILD LABOUR 07:50: BBC World News

    Samsung Electronics has suspended business ties with Chinese supplier, Dongguan Shinyang Electronics, after it uncovered evidence that suggested it used child labour. China Labor Watch said Shinyang employed children for three to six months during a particularly busy period. On World Business Report, Rico Hizon said the watchdog found at least five workers without contracts.

     
  7.  
    PORTUGUESE BANK 07:38:
    Banco Espirito Santo

    The bank that roiled the markets last week - Portugal's Banco Espirito Santo (BES) - has been told to appoint a new chief executive, reports the Financial Times. It seems the Bank of Portugal ordered BES to hold an emergency meeting on Sunday night to name Vitor Bento as the bank's new boss - described by the FT as " a respected economist and company manager".

     
  8.  
    WORLD CUP 07:33: BBC Radio 4
    German team, Brazil

    How was it for Brazil? Not on the pitch - but off it. Well, the World Cup wasn't the logistical disaster that many had predicted says the BBC's Katy Watson on Today. But Tom Cannon from Liverpool University says the tournament will leave the country deeper in the red and has not generated much long term economic legacy.

     
  9.  
    HEADLINES
     
  10.  
    SHIRE TAKEOVER BID 07:21:

    The board of UK drugs firm Shire is recommending a takeover offer from US rival AbbVie. It follows a revised offer worth £53.20 per share in cash and shares. AbbVie has raised its bid several times. It's an attractive deal for AbbVie as it can potentially dramatically reduce its tax bill.

     
  11.  
    CHOCOLATE DEAL 07:03:
    Russell Stover

    Never heard of Russell Stover? Well, according to its website, it was founded in 1923 by Clara and Russell Stover in their Denver bungalow. And it is a box of Russell Stover chocolates that leads Forrest Gump to quote his mother: "My mama always said, life was like a box of chocolates, you never know what you're gonna get."

     
  12.  
    CHOCOLATE DEAL 06:54:
    Man holding Lindt chocolate bar

    The Swiss chocolate company Lindt & Spruengli has confirmed it is buying an American firm Russell Stover Candies. The company says the deal "broadens its brand portfolio in the world's biggest chocolate marketplace" and that it is the "biggest and most important strategic acquisition in the company's history". The purchase price has not been disclosed.

     
  13.  
    BROADBAND 06:43: Radio 5 live
    Cables

    This seems hard to believe - some companies are still using a "dial-up" internet service, according to The Federation of Small Businesses. It says that UK broadband is not fit for purpose. Sue Terpilowski who runs marketing firm ImageLine tells Wake Up to Money her firm has been suffering dial up broadband speeds. Ironically her office is near London's hi-tech hub Silicon Roundabout.

     
  14.  
    CHEKHOV'S GUN 06:34: Radio 5 live

    A literary reference baffles presenter Mickey Clarke on Wake Up to Money. Markets guest Brenda Kelly says that "loose monetary policy has been something of a Chekhov's gun". "What's a Chekhov?" asks Mickey.

     
  15.  
    FARNBOROUGH AIRSHOW 06:27: BBC World News
    A330 plane

    "The A330 is a good rock solid airplane" says John Leahy, chief operating officer at Airbus on World Business Report, but he says it could be more fuel efficient. Leaner burning engines are part of the revamp that is set to be announced for the widebody passenger jet at the Farnborough Airshow this morning.

     
  16.  
    EXECUTIVE PAY 06:21:
    Boardroom graphic

    Executive pay has grown from 60 times that of the average worker to almost 180 times since the 1990s, according to the High Pay Centre. The think tank is calling on the government to take action to close the pay gap between company executives and their workers.

     
  17.  
    GLAXO CHINA 06:12:
    Glaxo Shanghai

    The Chinese authorities have formally charged a British businessman and his American wife for illegally obtaining and selling private information. Peter Humphrey and Yingzeng Yu were arrested last year in connection with a wider investigation into the British pharmaceutical giant GlaxoSmithKline. The couple, who run a corporate investigation company, were employed by GlaxoSmithKline last year.

     
  18.  
    SCOTTISH INDEPENDENCE 06:08: Radio 5 live

    More from Sir Tom Hunter, he tells Wake Up to Money that Scotland's entrepreneurial spirit was "pretty much extinguished" by mining, steel making and ship building. He believes that children need to be encouraged to be entrepreneurial at school.

     
  19.  
    SCOTTISH INDEPENDENCE 06:07: Radio 5 live

    Wake Up to Money is in Aberdeen and interviews one of Scotland's richest men, Sir Tom Hunter. He says that politicians are doing voters a "disservice" in the independence debate by providing two completely different answers over what would happen to the pound if Scotland were to leave the union.

     
  20.  
    CURRENCY MARKET INVESTIGATION 06:01:
    canary wharf

    US prosecutors are offering immunity deals to junior traders in London as part of their investigation into manipulation of the currency markets, according to the lead story in this morning's Financial Times. The report says that junior staff have been offered the deals, in return for information about their superiors.

     
  21.  
    06:00: Emily Young, Business Reporter

    Morning all. The World Cup is over but don't worry the Farnborough Air Show has begun. We'll have updates from there throughout the morning.

     
  22.  
    06:00: Ben Morris Business Reporter

    Is British broadband a bit feeble? The Federation for Small Business thinks so and that's one of the issues under discussion this morning. Stay with the Business live page. You can emails us at bizlive@bbc.co.uk or tweet @bbcbusiness.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.